The debt crisis in Africa encourages the overuse of natural resources

Date:

The debt crisis in Africa encourages overuse of natural resources

  • News by AUN News correspondent
  • Monday, March 27, 2023
  • AUN News – ISSN: 2949-8090

Summary:

  • The ongoing debt restructuring negotiations must consider these interactions with the environment and climate change and their mutual advantages.

  • It is crucial to create a more flexible and effective structure for resolving sovereign debt that can quickly give African nations the financial certainty and debt relief they want with the international community’s help.

  • African governments must focus on becoming more involved in the value chain across all material categories, especially in the manufacturing industry, given the abundance of natural resources and the discovery of new rare earth elements (cobalt, lithium, nickel, tantalum, tungsten, etc.)

  • Africa should aim to establish itself as the world’s supplier of vital minerals and a hub (mining and production) for the acquisition of rare earth elements due to the vast reserves of numerous critical minerals on the continent, notably in South and East Africa.

  • This would entail developing a new strategy and set of regulations to ensure profitable mining investment across the continent with an eye towards wealth creation, especially by investing in networks and value chains and using the African Continental Free Trade Area (AfCFTA) to increase productivity and investments.

Natural resources and riches in the form of natural capital are abundant and diverse in Africa. Africa is home to about 8% of the world’s natural gas reserves, 30% of its mineral resources, and 10% of its oil reserves. Also, Africa is home to a third of the world’s tropical rainforests that store CO2 and more than two-thirds of the world’s arable land. Despite having some of the world’s poorest nations, Africa is one of the continents with the most incredible natural richness.

Africa has historically had low levels of CO2 emissions compared to other regions, but due to increased emissions from its tropical lands, Africa’s CO2 emissions are rapidly increasing. Increased natural resource extraction and consumption related to rising material use on the continent and overseas in recent decades are the main drivers of this expansion.

Sustainable Development Goals 8.4.11 and 12.2.12 state that Africa must concentrate on sustainable resource management and utilisation. However, despite the abundance of studies on the material footprints of countries and the world in the literature, few studies specifically trace patterns and comprehend the factors that influence Africa’s raw material extraction and impression.

Africa is extracting and exporting more raw commodities.

According to a recent analysis of the raw material footprint of sub-Saharan Africa during the previous two decades, production and consumption nearly doubled between 1995 and 2015. Regarding raw material footprints, Africa is a net exporter of ores, fossil fuels, biomass, and building supplies. Africa’s exports of goods and services to the rest of the world saw a 53% growth in the raw material equivalents of exports, also known as raw material footprints, from 1.95 gigatonnes in 1995 to 2.98 gigatonnes in 2015.

For practically all African nations, the raw material footprint of exports rose. The countries that experienced the most significant growth in exports of raw material equivalents at that time were South Africa, Egypt, Nigeria, Algeria, Angola, and Ethiopia. African exports of agricultural commodities, including cocoa, palm oil, coffee, tea, and cotton, among other cash crops, as well as horticulture goods, notably to Europe and Asia, surged by 43% over the same period reflecting this trend.

South Africa, Algeria, and Nigeria had the most significant fossil fuel footprints in exports from Africa. In contrast, over a third of the ore footprint comprised Western Africa (Mauritania, Guinea, and Ghana) and Central Africa (Democratic Republic of Congo).

These skyrocketing raw material equivalent exports demonstrate the close relationship between raw material extraction and African nations’ growth strategies. Is this profitable and long-lasting?

Major carbon sinks have been destroyed, natural resources have been extracted for export, and these actions have negatively influenced the environment and climate change. As a result, the continent has not seen sustained growth, economic transformation, or prosperity.

While there hasn’t been much structural change, there has been more informal employment. According to research scheduled for publication in 2023, most informal workers in Africa are at the bottom of the employment ladder, where opportunities for advancement are slim.

How African nations can allow these low-level informal labourers to advance up the corporate ladder raises more significant issues. Can African countries use their natural riches to provide more substantial employment opportunities?

The unsettling link between raw material footprints and debt

This analysis shows a significant and favourable association between national debt and the raw material footprints of African exports.

This makes me feel bad. Exploiting natural resources is one of the essential options to fight the debt issue facing many African countries, even though doing so has a high environmental cost.

Given the current growth and development paradigm, raw material equivalents for exports are expected to rise significantly to pay off debts with the proceeds from mineral and oil sales, but this will have severe environmental effects.

The funding crunch and rising debt levels imply that climate action will fall to the wayside in African nations as the rest of the world concentrates on the following stages in tackling the climate problem. Africans will live in abject poverty as debt rises and raw material extraction for export increases.

This conclusion demonstrates the pressing need to address debt issues while talking about climate change, and it calls on lenders to recognise their contribution to Africa’s increasing environmental burden.

Options for policy

The latest Intergovernmental Panel on Climate Change (IPCC) assessment emphasises the urgent need to limit global warming to relatively safe levels. However, doing so will necessitate international cooperation, including collaboration with the African government.

It is critical that lenders, both multilateral and bilateral, and the international community expedite debt restructuring and urgently offer the assistance required to get countries back on a more sustainable budgetary path. Due to the problematic debt levels, there is very little financial room for population-supporting investments in health, education, and the environment.

The ongoing debt restructuring negotiations must consider these interactions with the environment and climate change and their mutual advantages. It is crucial to create a more flexible and effective structure for resolving sovereign debt that can quickly give African nations the financial certainty and debt relief they want with the international community’s help.

African nations need to reevaluate their paradigms for growth and development in the long run and concentrate on adding value to these massive raw commodities to generate prosperity. African governments must focus on finding ways to become more involved in the value chain across all material categories, especially in the manufacturing industry, given the abundance of natural resources and the discovery of new rare earth elements (cobalt, lithium, nickel, tantalum, tungsten, etc.) that are crucial for facilitating the green energy transition.

Africa should aim to establish itself as the world’s supplier of vital minerals and a hub (mining and production) for the acquisition of rare earth elements due to the vast reserves of numerous critical minerals on the continent, notably in South and East Africa.

This would entail developing a new strategy and set of regulations to ensure profitable mining investment across the continent with an eye towards wealth creation, especially by investing in networks and value chains and using the African Continental Free Trade Area (AfCFTA) to increase productivity and investments.

African governments should also create the enabling environment and necessary support, such as offering public incentives for private projects to attract personal finance to develop the networks and value chains in the sector, as has been done by the Dangote group in the construction of the oil refinery in Nigeria.

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